Tax cuts for South Carolina military retirees quickly advance in State House after McMaster push

COLUMBIA — Hours after his State of the State address calling for tax relief, a S.C. legislative panel advanced a top priority of Gov. Henry McMaster — exempting the retirement income of military veterans from the state’s income taxes.

A S.C. House Ways and Means subcommittee voted unanimously Thursday to exempt retirement income for more than 38,000 retired veterans, beginning in tax year 2021.

“The time has come to re-double our commitment to our state’s men and women in uniform,” McMaster told lawmakers Wednesday in his State of the State speech. “The exemption for veterans is a key factor in the Pentagon’s decisions on protecting and expanding a state’s military bases, and expanding and bringing new missions and troops to our bases.”

The five-member panel referred the bill to the full Ways and Means Committee for passage after hearing testimony from members of the S.C. Military Base Task Force.

Task force chairman Bill Bethea of Beaufort County told lawmakers that states are fighting to attract military retirees to address shortages in skilled workers. South Carolina, for example, has 60,000 highly paid jobs looking for workers.

“We believe that is a talent pool we have not previously fully tapped,” Bethea said. “We’ve done a tremendous job of attracting well-paying jobs and great industry. But, unfortunately, we haven’t kept pace with helping fill those jobs.”

Twenty-nine states currently do not tax military retirement pay.

“We want to be No. 30 and join the ‘green wave,’ and become the next state that makes it attractive for quality people who served their military,” Bethea said.

Now, S.C. law has an income tax deduction of up to $14,600 on income earned by taxpayers under age 65 who get military retirement income. Veterans age 65 and older can deduct up to $27,000 of their military retirement income. Those deductions increase to $17,500 and $30,000, respectively, in 2020, costing the state about $20 million in lost taxes.

The proposed bill would allow taxpayers to deduct any military retirement income from their S.C. taxable income.

If it becomes law, the proposal would save retirees an additional $9.8 million a year, according to the S.C. Revenue and Fiscal Affairs Office. That would amount to an average tax savings of $464.81 a year for retirees under age 65 and $137.70 a year for those 65 and older.

Fully exempting military retirement income would reduce the state’s general fund revenue by a total of $29.4 million in fiscal year 2021-22, according to Revenue and Fiscal Affairs.

However, Bethea and other supporters pointed to a study, released Tuesday by Clemson University, that predicts the tax cut would increase — not reduce — state revenue. That study predicts revenue would increase as the state’s economy grows from more retired veterans and their families moving to the state.

“I am absolutely convinced this bill ... will dramatically improve the quality of the workforce in Kershaw County and in South Carolina,” said Julian Burns, chairman of Kershaw County Council. “And, thus, improve our competitiveness in retaining and growing current industry and winning new business.

“Retiring veterans are an enormous pool of talented, reliable, healthy and dedicated personnel,” said Burns, who was in the Army for 35 years and works in the defense industry for BAE Systems. “(In Kershaw County,) we’ve invested heavily in site preparation and infrastructure. And the remaining issue for us is ... to gain a trained and ready workforce. ... And you can help us by passing this bill into law.”